King v. Burwell Ruling Favors Obama Administration

June 30, 2015 | Matt Habig, Nathan Baugh

In a 6-3 decision, the Supreme Court granted the Obama administration a major victory for its health care law last Thursday. The issue in King v. Burwell was whether the Patient Protection and Affordable Care Act’s (ACA) tax credits should be available to states that do not set up their own exchanges. As read, under section 36(b) of the ACA, an individual may receive tax credits if that individual enrolls in an insurance plan through “an exchange established by the state”.

When the Supreme Court looks to interpret a statute, there is a step-by-step process that the Court must follow. The first step, and often the most critical, is to determine whether the “plain language” of the statute is ambiguous or clear. In the majority’s opinion, written by Chief Justice Roberts, and joined by Justices, Kennedy, Sotomayor, Ginsburg, Kagan, and Breyer, the phrase “an Exchange established by the State” is “properly viewed as ambiguous” given the “inartful drafting” of the ACA. Such a determination triggers the second step which is that “the Court must look to the broader structure of the Act” to determine legislative intent and the meaning of section 36(b).

In doing so, the majority concluded that the main purpose of the ACA was to allow greater access to health care. This goal would not be reached if federal exchanges were not granted the tax credit that makes health care affordable. Thus, the majority felt that tax credits should be applied to federal exchanges.

Justice Scalia, in his dissenting opinion, argued that there was no “plain language” ambiguity in the reading of the statute. He also believed that the Supreme Court rectifying the situation was not the role of the judiciary, and should be best left to Congress.

This decision should help the Exchanges avoid the so-called “death spiral” whereby healthy individuals drop out of the market due to high prices, leaving a sicker, older population behind which in turn forces the insurance companies to raise premiums even higher. Nevertheless, premiums on 2016 Exchange plans are expected to rise and the “death spiral” phenomenon is still a concern for the long term viability of the Exchange market.